When Blockbuster (BBI) rolled out its Total Access online plan, many analysts and investors applauded, thinking it would be an answer to NetFlix (NFLX) and online movie downloads; unfortunately that hasn't panned out for them, as they reported another quarterly loss which was much larger than anticipated. The company has now incurred losses in nine out of the last ten years.
Their online rental plan lost around 500,000 subscribers in the quarter for the company, ending the quarter with 3.1 million customers. Some of that is related to eliminating subscribers who were unprofitable to the company by changing the terms to the Total Access plan.
In a move to stop the bleeding, the company will eliminate more jobs, and may outsource some of its corporate operations to save up to $45 million annually.
Another part of their strategy is to not focus so much on the Total Access plan alone, but look at ways to grow their user base of over 20 million, including their physical store customers. That could actually grow in the months ahead, as their competitor Movie Gallery Inc. (MOVIQ.PK) recently filed for bankruptcy protection. They plan on closing about 520 locations.
CEO James Keyes also said the company may increase the price of their Total Access plan to generate more revenue and make it profitable.
"We think that longer-term customers will be more willing to pay for the added value and added convenience that Total Access can provide," Keyes said. "We do think there's upside potential." Key confirmed the company overspent on the space, and weren't getting a good return on their money.
The Total Access plan allows users to rent movies on the Internet and then exchange them in a physical store if they choose to.
Keys added that he's also thinking of selling off the company's international locations to franchisees.
The numbers show the company can't continue to compete with NetFlix on a price basis alone, as it has commoditized the service, and there really isn't an appreciation by users for the convenience of dropping them off and getting immediate gratification. Increasing the price of the service would add value to the service and the mind of their customers, and get rid of more users who cost more to serve than the company can afford. They should take those steps.
I also think they should think of more ways to use their physical space to sell products outside the movie business. There are a lot of things they could add to increase sales.
The loss in the third quarter grew to $35 million, or 20 cents a share. Last year at the same time the losses were $24.7 million or 15 cents a share. Overall revenue declined by 5.7 percent to $1.24 billion, after the company closed 526 stores they owned.
As of September 30, Blockbuster operated 7,851 stores, a drop from the 8,529 they had a year ago.
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